-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U2ulSd+ek39D3qOSUGiJ4jPmwfakxgAlwXg9Q6cta1+lThZNuFQKa061Y+UCGYn0 jKazvmqm4Shto5IC8IoJzQ== 0000950129-97-002067.txt : 19970520 0000950129-97-002067.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950129-97-002067 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EAGLE USA AIRFREIGHT INC CENTRAL INDEX KEY: 0001001718 STANDARD INDUSTRIAL CLASSIFICATION: ARRANGEMENT OF TRANSPORTATION OF FREIGHT & CARGO [4731] IRS NUMBER: 760094895 STATE OF INCORPORATION: TX FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27288 FILM NUMBER: 97607706 BUSINESS ADDRESS: STREET 1: 3214 LODESTAR CITY: HOUSTON STATE: TX ZIP: 77032 BUSINESS PHONE: 7134421188 MAIL ADDRESS: STREET 1: 3838 N SAM HOUSTON PKWY STREET 2: SUITE 510 CITY: HOUSTON STATE: TX ZIP: 77032 10-Q 1 EAGLE USA AIRFREIGHT, INC. - 3/31/97 1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended MARCH 31, 1997 -------------- or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to -------- ------- COMMISSION FILE NUMBER 0-27288 ------- EAGLE USA AIRFREIGHT, INC. (Exact name of registrant as specified in its charter) TEXAS 76-0094895 - ------------------------------- --------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification Number) Incorporation or Organization) 3214 LODESTAR, HOUSTON, TEXAS 77032 (281) 821-0300 ------------------------------------------------------------------------- (Address of Principal Executive Offices, Including Registrant's Zip Code, and Telephone Number, Including Area Code) NONE --------------------------------------------------- Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares of the registrant's common stock as of May 9, 1997: 17,899,452 shares. =============================================================================== 2 EAGLE USA AIRFREIGHT, INC. INDEX TO FORM 10-Q
PAGE PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheet as of..........................................................................3 March 31, 1997 (unaudited) and September 30, 1996 (audited) Condensed Consolidated Statement of Income for the Six..............................................................4 Months ended March 31, 1997 and 1996 (unaudited) Condensed Consolidated Statement of Income for the Three............................................................5 Months ended March 31, 1997 and 1996 (unaudited) Condensed Consolidated Statement of Cash Flows for..................................................................6 the Six Months ended March 31, 1997 and 1996 (unaudited) Condensed Consolidated Statement of Shareholders'...................................................................7 Equity for the Six Months ended March 31, 1997 (unaudited) Notes to Condensed Consolidated Financial Statements (unaudited)....................................................8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................................................................................11 PART II. OTHER INFORMATION.........................................................................................18 SIGNATURES...........................................................................................................20 INDEX TO EXHIBITS....................................................................................................21
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS EAGLE USA AIRFREIGHT, INC. CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT PAR VALUES)
March 31, September 30, 1997 1996 (unaudited) (audited) ---------------- ---------------- Assets Current assets: Cash and cash equivalents $ 27,366 $ 26,696 Short-term investments 4,382 3,409 Accounts receivable - trade, net 40,344 30,379 Prepaid expenses and other 3,732 2,290 ---------------- ---------------- Total current assets 75,824 62,774 Property and equipment, net 10,898 8,333 Other assets 653 622 ----------------- ----------------- $ 87,375 $ 71,729 ================ ================ Liabilities and Shareholders' Equity Current liabilities: Accounts payable - trade $ 3,813 $ 2,459 Accrued transportation costs 9,689 10,818 Other current liabilities 7,937 8,010 ---------------- ---------------- Total current liabilities 21,439 21,287 ---------------- ---------------- Long-term indebtedness Shareholders' equity: Preferred stock, $0.001 par value, 10,000 shares authorized Common stock, $0.001 par value, 30,000 shares authorized, 17,875 and 17,492 shares issued 18 17 Additional paid-in capital 47,155 39,124 Retained earnings 18,763 11,301 ---------------- ---------------- 65,936 50,442 ---------------- ---------------- $ 87,375 $ 71,729 ================ ================
See notes to unaudited condensed consolidated financial statements. 3 4 EAGLE USA AIRFREIGHT, INC. CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Six Months Ended March 31, ---------------------------------- 1997 1996 --------------- --------------- Revenues $ 129,075 $ 79,749 Cost of transportation 72,877 44,386 --------------- --------------- 56,198 35,363 --------------- --------------- Operating expenses: Personnel costs 29,173 18,165 Other selling, general and administrative expenses 15,802 9,609 --------------- --------------- 44,975 27,774 --------------- --------------- Operating income 11,223 7,589 --------------- --------------- Interest and other income 974 463 Interest expense (136) --------------- --------------- Nonoperating income 974 327 --------------- --------------- Income before provision for income taxes 12,197 7,916 Provision for income taxes 4,735 2,322 --------------- --------------- Net income $ 7,462 $ 5,594 =============== =============== Pro forma information: Net income - as reported $ 5,594 Pro forma charge in lieu of income taxes (Note 2) 945 --------------- Pro forma net income $ 4,649 =============== Weighted average common and common equivalent shares outstanding 18,554 17,512 =============== =============== Net income per share (Note 3) $ 0.40 $ 0.27 =============== ===============
See notes to unaudited condensed consolidated financial statements. 4 5 EAGLE USA AIRFREIGHT, INC. CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended March 31, -------------------------- 1997 1996 ----------- ----------- Revenues $ 61,489 $ 39,051 Cost of transportation 34,806 21,257 ----------- ----------- 26,683 17,794 ----------- ----------- Operating expenses: Personnel costs 14,885 9,538 Other selling, general and administrative expenses 7,773 4,926 ----------- ----------- 22,658 14,464 ----------- ----------- Operating income 4,025 3,330 ----------- ----------- Interest and other income 701 300 Interest expense (5) ----------- ----------- Nonoperating income 701 295 ----------- ----------- Income before provision for income taxes 4,726 3,625 Provision for income taxes 1,778 1,519 ----------- ----------- Net income $ 2,948 $ 2,106 =========== =========== Weighted average common and common equivalent shares outstanding 18,643 18,692 =========== =========== Net income per share (Note 3) $ 0.16 $ 0.11 =========== ===========
See notes to unaudited condensed consolidated financial statements. 5 6 EAGLE USA AIRFREIGHT, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Six Months Ended March 31, ---------------------------- 1997 1996 ------------ ------------ Cash flows from operating activities $ (1,929) $ 2,172 ------------ ------------ Cash flows from investing activities: Purchase of investments (4,101) (4,991) Maturity of investments 3,128 6,224 Acquisition of property and equipment, net (3,367) (3,681) Repayments from affiliates 704 ------------ ------------ Net cash used by investing activities (4,340) (1,744) ------------ ------------ Cash flows from financing activities: Payments on indebtedness (2,070) Proceeds from indebtedness 1,800 Issuance of common stock, net of related costs 6,165 34,568 Offering fee paid by selling shareholder 375 Proceeds from exercise of stock options 399 Payments on shareholder distribution notes (8,209) Distributions to shareholders (2,701) ------------ ------------ Net cash provided by financing activities 6,939 23,388 ------------ ------------ Net increase in cash and cash equivalents 670 23,816 Cash and cash equivalents, beginning of period 26,696 179 ------------ ------------ Cash and cash equivalents, end of period $ 27,366 $ 23,995 ============ ============
See notes to unaudited condensed consolidated financial statements. 6 7 EAGLE USA AIRFREIGHT, INC. CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) (IN THOUSANDS)
COMMON STOCK ADDITIONAL ------------------- PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS TOTAL ------ --------- --------- ------------ -------- Balance at September 30, 1996 17,492 $ 17 $ 39,124 $ 11,301 $ 50,442 Issuance of Common Stock, net of related costs (Note 1) 232 6,165 6,165 Exercise of stock options 151 1 398 399 Tax benefit from exercise of stock options 1,468 1,468 Net income 7,462 7,462 ------ --------- --------- ------------ -------- Balance at March 31, 1997 17,875 $ 18 $ 47,155 $ 18,763 $ 65,936 ====== ========= ========= ============ ========
See notes to unaudited condensed consolidated financial statements. 7 8 EAGLE USA AIRFREIGHT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) The accompanying unaudited condensed consolidated financial statements have been prepared by Eagle USA Airfreight, Inc. (the Company) in accordance with the rules and regulations of the Securities and Exchange Commission (the SEC) for interim financial statements and accordingly do not include all information and footnotes required under generally accepted accounting principles for complete financial statements. The financial statements have been prepared in conformity with the accounting principles and practices disclosed in, and should be read in conjunction with, the annual financial statements of the Company included in the Company's Annual Report on Form 10-K (File No. 0-27288). In the opinion of management, these interim financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Company's financial position at March 31, 1997 and the results of its operations for the six and three months ended March 31, 1997 and 1996. Results of operations for the six and three months ended March 31, 1997 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 1997. NOTE 1 - ORGANIZATION, OPERATIONS, AND SIGNIFICANT ACCOUNTING POLICIES: Eagle USA Airfreight, Inc. (the Company) was organized in 1984 to provide ground and air freight forwarding services. The Company maintains operating facilities throughout the United States and a recently opened facility in both Canada and Mexico. The Company operates in one principal industry segment. On February 18, 1997, the Company completed an underwritten secondary public offering (the secondary public offering) of 1,548 shares of its common stock by Daniel S. Swannie, a former executive officer and director of the Company, at a price to the public of $28.25 per share. The Company did not receive any of the proceeds from the sale of shares by Mr. Swannie. Pursuant to an agreement between the Company and Mr. Swannie entered into in connection with the offering, Mr. Swannie reimbursed the Company for all of its out-of-pocket expenses incurred in connection with the offering and made a payment to the Company of $375 for the Company's estimated internal costs relating to the offering. The agreement also restricts Mr. Swannie's ability to compete against the Company for a three-year term and places certain other limitations on his ability to act against the interests of the Company. In connection with the secondary public offering on February 21, 1997, the Company sold 232 shares of common stock to the underwriters pursuant to an over-allotment option at a price to the public of $28.25 per share. The net proceeds received by the Company after deducting underwriting discounts and commissions were $6,165 and will be used for general corporate purposes. On December 6, 1995, the Company completed an underwritten initial public offering (the IPO) of 2,000 (pre split) shares of common stock at a price to the public of $16.50 (pre split) per share. In connection with the offering, the underwriters fully exercised an over-allotment option of 300 (pre split) shares. Proceeds to the Company after deducting underwriting discounts, commissions and offering costs were approximately $34,559. A portion of the proceeds were used to retire debt and make distributions to shareholders. The remaining proceeds have and may continue to be used for general corporate purposes, including acquisitions and working capital. 8 9 EAGLE USA AIRFREIGHT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) Also in connection with the initial public offering, the Company acquired from its Chairman of the Board the interests in Eagle Freight Services, Inc., C&D Freight Services of California, Inc., Eagle USA Transportation Services, Inc., Freight Services Management, Inc., and Eagle USA Import Brokers, Inc. that were previously owned by the Company's principal shareholder in exchange for 223 shares of newly issued common stock of the Company. The accounts of each subsidiary have been consolidated as if wholly-owned as of the beginning of each period presented. NOTE 2 - INCOME TAXES: Effective October 1, 1992, the Company elected to be treated as an S Corporation for federal income tax purposes. On December 4, 1995, shortly prior to the consummation of the initial public offering, the Company's S Corporation status was terminated and, accordingly, the Company became liable for federal income taxes on taxable income generated prospectively and for cumulative temporary differences between income for financial and tax reporting purposes at the date of the termination. At that time, the Company recorded a net deferred tax asset and charged additional paid-in capital to recognize the effect of its conversion to C Corporation status pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). The pro forma charge in lieu of income taxes for the six month period ended March 31, 1996 represents the estimated federal income taxes that would have been reported under FAS 109 had the Company been a C Corporation prior to December 4, 1995. NOTE 3 - NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE: On July 8, 1996, the Board authorized a two-for-one stock split, effected in the form of a stock dividend, payable August 1, 1996 to shareholders of record on July 24, 1996. All references in the financial statements to earnings per share information have been retroactively restated to reflect the split. The stock split resulted in the issuance of 8,673 new shares of common stock. Net income per share is computed by using the weighted average number of common and common stock equivalent shares outstanding during the period. Common stock equivalents include the number of shares issuable upon exercise of stock options less the number of shares that could have been repurchased with the exercise proceeds and related tax benefits using the treasury stock method. For purposes of the net income per share computation, the two-for-one stock split and the shares issued to the Company's Chairman of the Board in connection with the acquisition of his interests in the Company's subsidiaries have been treated as if they had been effective and outstanding as of the beginning of each period presented. 9 10 EAGLE USA AIRFREIGHT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) The number of shares used in the computation were determined as follows:
SIX MONTHS ENDED MARCH 31, ----------------------- 1997 1996 ------ ------ Weighted average number of common shares outstanding 17,621 14,940 Common stock equivalents 933 1,618 Effect of shares issued to the Company's Chairman of the Board 446 Number of shares sold by the Company to fund pre-IPO S Corporation distributions 508 ------ ------ 18,554 17,512 ====== ======
THREE MONTHS ENDED MARCH 31, ----------------------- 1997 1996 ------ ------ Weighted average number of common shares outstanding 17,717 17,046 Common stock equivalents 926 1,646 ------ ------ 18,643 18,692 ====== ======
For the six months ended March 31, 1996, net income per share includes a pro forma charge in lieu of income taxes of $945 which represents the estimated federal income taxes that would have been reported had Eagle USA been a C Corporation prior to December 4, 1995. NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS: Effective October 1, 1996, the Company adopted the provisions of Statement of Financial Accounting Standard No. 121 (FAS 121), "Accounting for Impairment of Long-Lived Assets and for Assets to be Disposed Of". The adoption of FAS 121 did not have a material effect on the Company's financial position or results of operations. Effective October 1, 1996, the Company adopted the provisions of Statement of Financial Accounting Standard No. 123 (FAS 123), "Accounting for Stock-Based Compensation". The adoption of FAS 123 did not have a material effect on the Company's financial position or results of operations. Upon adoption of FAS 123, the Company continues to measure compensation expense for its stock-based employee compensation plan using the intrinsic-value method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees", and will provide pro forma disclosures of net income and earnings per share on an annual basis as if the fair value-based method prescribed by FAS 123 had been applied in measuring compensation expense. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standard No. 128 (FAS 128), "Earnings Per Share". The Company will adopt FAS 128 as required effective October 1, 1997. FAS 128 will require computation of "basic" earnings per share, rather than the current "primary" earnings per share, using the weighted average common shares outstanding for a period, but excluding common stock equivalents. 10 11 EAGLE USA AIRFREIGHT, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected certain aspects of the Company's financial position and operating results during the periods included in the accompanying unaudited condensed consolidated financial statements. This discussion should be read in conjunction with the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the annual financial statements included in the Company's Annual Report on Form 10-K (File No. 0-27288) and the accompanying unaudited condensed consolidated financial statements. General The Company's revenues have increased to $185.4 million in the fiscal year ended September 30, 1996 from $83.3 million in the fiscal year ended September 30, 1994, and its operating income has increased to $17.8 million in fiscal 1996 from $5.9 million in fiscal 1994. The Company's recent growth has been generated almost exclusively by increasing the number of terminals operated by the Company and growth in revenue produced by existing terminals. The opening of a new terminal generally has an initial negative impact on profitability due to operating losses of the new terminal. The opening of a new terminal generally does not require significant capital expenditures. Additionally, personnel costs are contained at the time of the opening of a new terminal because commissions are generally not paid until salesmen achieve minimum sales levels and until managers achieve terminal profitability. Although future new terminals may be opened in cities smaller than those in which the Company's more mature terminals are located, the Company believes the results of new terminals should benefit from a ready base of business provided by its existing customers. Historically, the Company's operating results have been subject to a limited degree to seasonal trends when measured on a quarterly basis. The second quarter has traditionally been the weakest and the fourth quarter has traditionally been the strongest. The Company intends to continue to expand its international freight forwarding business. International shipments typically generate higher revenues per shipment than domestic shipments. The Company anticipates that the costs of transportation for international freight will be higher than for domestic freight as a percentage of such revenues, resulting in lower gross margins than domestic shipments; however, the Company does not expect its operating expenses to increase in proportion to such revenues. The Company also intends to continue the growth of its local pick-up and delivery operations. By providing local pick-up and delivery services with respect to shipments for which it is the freight forwarder, the Company has been able to increase its gross margin with respect to such shipments because its costs to provide such services are less than the third-party charges it previously paid. However, the Company's local pick-up and delivery services provided to other (non-forwarding) customers generate a lower gross margin than the Company's domestic forwarding operations due to their higher transportation costs as a percentage of revenues. Six Months Ended March 31, 1997 compared to the Six Months Ended March 31, 1996 Revenues increased 61.9% to $129.1 million for the six months ended March 31, 1997 from $79.8 million for the six months ended March 31, 1996 primarily due to increases in the number of shipments and the total weight of cargo shipped, which in turn resulted from an increase in the number of terminals open during such period, an increase in penetration in existing markets and the addition of significant national account customers. 11 12 EAGLE USA AIRFREIGHT, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Operating data for the period were as follows:
SIX MONTHS ENDED MARCH 31, -------------------------- 1997 1996 ------- ------- Freight forwarding terminals at end of period 53 40 Local delivery terminals at end of period 40 19 Freight forwarding shipments 358,875 226,925 Average weight per freight forwarding shipment 552 607
For those freight forwarding terminals open as of the beginning of fiscal 1996 (37 terminals), revenues increased 48.9% to $108.6 million for the six months ended March 31, 1997 from $72.9 million for the six months ended March 31, 1996. Revenues for the six months ended March 31, 1997 were comprised of $121.6 million of forwarding revenues, $7.2 million of local pick-up and delivery revenues and $327,000 of other freight forwarding service revenues, as compared to $74.4 million, $5.2 million and $208,000, respectively, for the corresponding period in 1996. Cost of transportation increased as a percentage of revenues to 56.5% in the first six months of fiscal 1997 from 55.7% in the comparable period in fiscal 1996, as a result of several factors. Beginning in October 1996, several of the Company's transportation providers implemented a fuel surcharge (which was not in effect during the fiscal 1996 period). Increased revenues from international freight, which were $8.4 million for the six months ended March 31, 1997 as compared to $3.7 million for the same period in fiscal 1996, also contributed to the higher cost of transportation as a percentage of revenues. Additionally, the reinstatement on March 7, 1997 of the Federal Air Cargo Transportation Excise Tax (the Federal Excise Tax), which had previously expired January 1, 1997, negatively impacted cost of transportation as a percentage of revenues for the period. In fiscal 1996, the Federal Excise Tax expired January 1, 1996 and was not reinstated until August 27, 1996. The increase of cost of transportation as a percentage of revenues that resulted from these factors was partially offset by the continued expansion of the company's local pick-up and delivery operations, which enabled the Company to capture margins previously paid to third parties. Cost of transportation increased in absolute terms by 64.2% to $72.9 million for the six months ended March 31, 1997 from $44.4 million in the same period in fiscal 1996 as a result of increases in air freight shipped. Gross margins decreased to 43.5% in the six months ended March 31, 1997 from 44.3% in the same period in fiscal 1996. Gross profit increased 58.9% to $56.2 million for the six months ended March 31, 1997 from $35.4 million in the same period in fiscal 1996. Operating expenses remained constant as a percentage of revenues at 34.8% in the first six months of fiscal 1997 and 1996. The $17.2 million of increased costs in absolute terms was attributable primarily to continued growth in the level of operations from additional terminals and expansion of local delivery operations. Personnel costs decreased slightly as a percentage of revenues to 22.6% for the six months ended March 31, 1997 from 22.8% in the same period in fiscal 1996, and increased in absolute terms by 60.6% to $29.2 million due to increased staffing needs associated with the opening of 13 new terminals, expanded operations at existing terminals and increased revenues, which resulted in increased commissions. Such costs include all compensation expenses, including those relating to sales commission and salaries and to headquarters employees and executive officers. Other selling, general and administrative expenses increased slightly as a percentage of revenues to 12.2% for the six 12 13 EAGLE USA AIRFREIGHT, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) months ended March 31, 1997 from 12.0% in the same period in fiscal 1996, and increased in absolute terms by 64.4% to $15.8 million in the first six months ended March 31, 1997 from $9.6 million in the same period in fiscal 1996. For the six months ended March 31, 1997, selling expenses as a percentage of revenues decreased by 0.3% and other general and administrative expenses as a percentage of revenue increased 0.5% compared to the same period in fiscal 1996. The increases in selling, general and administrative expenses were due to overall increases in the level of the Company's activities in the fiscal 1997 period. Operating income increased 47.9% to $11.2 million in the first six months of fiscal 1997 from $7.6 million in the comparable period in fiscal 1996. Operating margin for the first six months of fiscal 1997 was 8.7%, down from 9.5% for the same period in fiscal 1996 primarily due to the higher transportation costs as a percentage of revenues during the six months ended March 31, 1997. Interest and other income increased to $599,000 in the first six months of fiscal 1997 from $463,000 in the comparable period in fiscal 1996 as a result of increased levels of investments resulting from the initial and secondary public offering proceeds. Interest expense was zero for the first six months of fiscal 1997 as compared to $136,000 in the same period in fiscal 1996. The interest expense was associated with the promissory notes distributed to the Company's S Corporation shareholders and short-term borrowings on the Company's revolving line of credit. These debts were retired with a portion of the net proceeds of the initial public offering. Interest and other income for the fiscal 1997 period included a one-time payment of $375,000 by Mr. Daniel S. Swannie, a former executive officer and director of the Company, in connection with the reimbursement of the Company's internal costs related to the February 1997 secondary public offering. Income before provision for income taxes increased 54.1% to $12.2 million for the first six months of fiscal 1997 from $7.9 million in the comparable period of fiscal 1996. Provision for income taxes increased 103.9% to $4.7 million for the six months ended March 31, 1997 from $2.3 million for six months ended March 31, 1996. A portion of the increase in provision for income taxes was from the termination of the S Corporation status shortly prior to the initial public offering on December 6, 1995, at which time Eagle USA Airfreight, Inc. began accruing federal income taxes. Federal income taxes had previously been paid by the Company's subsidiaries. Net income increased 33.4% to $7.5 million for the six months ended March 31, 1997 from net income of $5.6 million in the same period in fiscal 1996 and increased 60.5% from pro forma net income of $4.6 million in the same period in fiscal 1996, which reflects a charge for federal income taxes during the S Corporation period. Net income per share increased 48.1% to $0.40 for the six months ended March 31, 1997 from $0.27 in the same period in fiscal 1996 even with the increase in shares outstanding as a result of the initial public offering and the secondary offering. Three Months Ended March 31, 1997 compared to the Three Months Ended March 31, 1996 Revenues increased 57.5% to $61.5 million for the three months ended March 31, 1997 from $39.1 million in the same period of fiscal 1996 primarily due to increases in the number of shipments and the total weight of cargo shipped, which in turn resulted primarily from an increase in the number of terminals open during such period, an increase in penetration in existing markets and the addition of significant national account customers. 13 14 EAGLE USA AIRFREIGHT, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Operating data for the period were as follows:
Three Months Ended March 31, ---------------------------- 1997 1996 ------------ ----------- Freight forwarding terminals at end of period 53 40 Local delivery terminals at end of period 40 19 Freight forwarding shipments 174,059 115,664 Average weight per freight forwarding shipment 562 590
For those freight forwarding terminals open as of the beginning of fiscal 1996 (37 terminals), revenues increased 45.8% to $51.2 million for the three months ended March 31, 1997 from $35.1 million for the three months ended March 31, 1996. Revenues for the three months ended March 31, 1997 were comprised of $57.8 million of forwarding revenues, $3.6 million of local pick-up and delivery revenues and $142,000 of other freight forwarding service revenues, as compared to $36.4 million, $2.5 million and $109,000, respectively, for the three months ended March 31, 1996. Cost of transportation increased during the quarter ended March 31, 1997 as a percentage of revenues to 56.6% from 54.4% in the comparable period in fiscal 1996, as a result of several factors. Beginning in October 1996, several of the Company's transportation providers implemented a fuel surcharge (which was not in effect during the fiscal 1996 period). Increased revenues from international freight, which were $4.4 million for the three months ended March 31, 1997 as compared to $2.3 million for the same period in fiscal 1996, also contributed to the higher cost of transportation as a percentage of revenues. Additionally, the reinstatement on March 7, 1997 of the Federal Excise Tax, which had previously expired January 1, 1997, negatively impacted cost of transportation as a percentage of revenues, for the quarter. In fiscal 1996, the Federal Excise Tax expired January 1, 1996 and was not reinstated until August 27, 1996. The increase of cost of transportation as a percentage of revenues that resulted from these factors was partially offset by the continued expansion of the company's local pick-up and delivery operations, which enabled the Company to capture margins previously paid to third parties. Cost of transportation increased in absolute terms by 63.7% to $34.8 million in the fiscal 1997 quarter from $21.3 million in the fiscal 1996 quarter as a result of increases in air freight shipped. Gross margins decreased to 43.4% in the second quarter of fiscal 1997 from 45.6% in the same period in fiscal 1996. Gross profit increased 50.0% to $26.7 million in the second quarter of fiscal 1997 from $17.8 million in the same period in fiscal 1996. Operating expenses decreased as a percentage of revenues to 36.8% in the three months ended March 31, 1997 from 37.0% for the same period in fiscal 1996. The $8.2 million of increased costs in absolute terms was attributable primarily to continued growth in the level of operations from additional terminals and expansion of local delivery operations. Personnel costs decreased as a percentage of revenues to 24.2% in the three months ended March 31, 1997 from 24.4% in the same period in fiscal 1996, and increased in absolute terms by 56.1% to $14.9 million due to increased staffing needs associated with the opening of 13 new terminals, expanded operations at existing terminals and increased revenues, which resulted in an increase in commissions. Such costs include all compensation expenses, including those relating to sales commissions and salaries and to headquarters employees and executive officers. Other selling, general and administrative expenses remained constant as a percentage of revenues at 12.6% in the second quarter of fiscal 1997 from 12.6% in the second quarter of fiscal 14 15 EAGLE USA AIRFREIGHT, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) 1996, and increased in absolute terms by 57.8% to $7.8 million in the fiscal 1997 period from $4.9 million in the fiscal 1996 period. In the second quarter of fiscal 1997, selling expenses as a percentage of revenues decreased by 0.1% and other general and administrative expenses as a percentage of revenues increased by 0.1% compared to the second quarter of fiscal 1996. The increases in selling, general and administrative expenses were due to overall increases in the level of the Company's activities in the fiscal 1997 period. Operating income increased 20.9% to $4.0 million in the second quarter of fiscal 1997 from $3.3 million in the comparable period in fiscal 1996. Operating margin for the quarter ended March 31, 1997 was 6.5%, down from 8.5% for the three months ended March 31, 1996 primarily due to the higher transportation costs as a percentage of revenues during the three months ended March 31, 1997. Interest and other income increased to $326,000 from $300,000 as a result of increased levels of investments resulting from the public offering proceeds received during the fiscal 1997 quarter. Interest expense was zero for the second quarter of fiscal 1997 as compared to $5,000 in the same period in fiscal 1996. Interest and other income for the fiscal 1997 period included a one-time payment of $375,000 by Mr. Daniel S. Swannie, a former executive officer and director of the Company, in connection with the reimbursement of the Company's internal costs related to the February 1997 secondary public offering. Income before provision for income taxes increased 30.4% to $4.7 million for the second quarter of fiscal 1997 from $3.6 million in the comparable period of fiscal 1996. Provision for income taxes increased 17.1% to $1.8 million for the three months ended March 31, 1997 from $1.5 million for the three months ended March 31, 1996. Net income increased 40.0% to $2.9 million in the second quarter of fiscal 1997 from net income of $2.1 million in the same period in fiscal 1996. Net income per share increased 45.4% to $0.16 per share for the quarter ended March 31, 1997 from $0.11 in the same period in fiscal 1996. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and short-term investments increased $1.6 million to $31.7 million at March 31, 1997 from $30.1 million at September 30, 1996. At March 31, 1997, the Company had working capital of $54.4 million and a current ratio of 3.54 compared to working capital of $41.5 million and a current ratio of 2.95 at September 30, 1996. The Company's working capital has increased primarily as a result of the proceeds from the Company's initial and secondary public offerings, profitable growth associated with the expansion of the Company's operations and the resultant increase in accounts receivable and payable. Capital expenditures for the six months ended March 31, 1997 were approximately $3.4 million. The Company believes that cash flow from operations, its $10 million credit facility and the remaining proceeds from the public offerings will be adequate to support its normal working capital and capital expenditures requirements for at least the next 12 months. On February 18, 1997, the company completed an underwritten secondary public offering of 1,547,758 shares of its common stock by Daniel S. Swannie, a former executive officer and director of the Company, at a price to the public of $28.25 per share. The Company did not receive any of the proceeds from the sale of the shares by Mr. Swannie. Pursuant to an agreement between the Company and Mr. Swannie entered into in 15 16 EAGLE USA AIRFREIGHT, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) connection with the offering, Mr. Swannie reimbursed the Company for all of its out-of-pocket expenses incurred in connection with the offering and made a payment to the Company of $375,000 for the Company's estimated internal costs relating to the offering. The agreement also restricts Mr. Swannie's ability to compete against the Company for a three-year term and places certain other limitations on his ability to act against the interests of the Company. In connection with the secondary offering on February 21, 1997, the Company sold 232,164 shares of common stock to the underwriters pursuant to an over-allotment option at a price to the public of $28.25 per share. The net proceeds received by the Company after deducting underwriting discounts and commissions were $6,165,115 and will be used for general corporate purposes. Other than its initial and secondary public offerings, the Company's cash generated from operations has been its primary source of liquidity, although it has from time to time made limited use of bank borrowing and lease purchase arrangements. The Company has a $10 million revolving credit facility with NationsBank of Texas, N.A. as of March 31, 1997, no amounts were outstanding under this credit facility. The borrowing base under the credit facility is equal to 80% of eligible accounts receivable and was approximately $27.5 million as of March 31, 1997. Borrowings under the credit facility bear interest, at the Company's option, at the bank's prime rate or LIBOR plus an interest margin based on leverage ratios. The credit facility expires and borrowings under the credit facility are due in January 1998. Borrowings under the credit facility are collateralized by substantially all of the Company's inventory and accounts receivable. The credit facility's covenants restrict the incurrence of other debt in an amount exceeding $1 million, include restrictions on liens, investments and acquisitions, require the maintenance of minimum net worth, a fixed charge coverage ratio and a leverage ratio and restrict the payment of dividends to 25% of the Company's cumulative net worth generated after the date of the initial public offering. The Company expects to retain all available earnings generated by its operations for the development and growth of its business and does not anticipate paying any cash dividends on its common stock in the foreseeable future. The Company made distributions of cash and/or notes to its pre-IPO shareholders of $14.6 million and $2.7 million during the fiscal years ended September 30, 1995 and 1996, respectively. Prior to the closing of the IPO, the Company paid a series of distributions of cash and notes in an amount estimated to equal to all of its previously undistributed S Corporation earnings. As of March 31, 1997, the Company had outstanding non-qualified stock options to purchase an aggregate of 2,261,878 shares of Common Stock at exercise prices equal to the fair market value of the underlying Common Stock on the dates of grant (prices ranging from $1.25 to $30.63). At the time a non-qualified stock option is exercised, the Company will generally be entitled to a deduction for federal and state income tax purposes equal to the difference between the fair market value of the common stock on the date of exercise and the option price. As a result of exercises for the six months ended March 31, 1997 of non-qualified stock options to purchase an aggregate of 150,249 shares of Common Stock, the Company is entitled to a federal income tax deduction of approximately $3.7 million. Assuming an effective tax rate of 40%, the Company expects to recognize a tax benefit of approximately $1.5 million with respect to the six months ended March 31, 1997, accordingly, the Company recorded such an increase in additional paid-in capital and a decrease in current income taxes payable pursuant to the provisions of FAS No. 109, "Accounting for Income Taxes." Any exercises for non-qualified stock options in the future at exercise prices below the then fair market value of the common stock may also result in tax benefits for 16 17 EAGLE USA AIRFREIGHT, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) the difference between such amounts, although there can be no assurance as to whether or not such exercises will occur, the amount of any deductions or the Company's ability to fully utilize such tax deductions. On January 10, 1997, the Company entered into a five-year operating lease agreement with two unrelated parties for financing the construction of its Houston terminal, warehouse and headquarters facility (the Houston facility). Estimated costs of the Houston facility are $8.0 million. Under the terms of the lease agreement, average monthly lease payments are approximately $59,000 (including monthly interest costs based upon LIBOR rate plus 200 basis points) beginning October 1, 1997 through January 2, 2002 with a balloon payment equal to the outstanding lease balance (initially equal to the cost of the facility) due on January 2, 2002. The Company has an option, exercisable at anytime during the lease term, and under certain circumstances may be obligated, to acquire the facility for an amount equal to the outstanding lease balance. In the event the Company does not exercise the purchase option, it is subject to a deficiency payment computed as the amount equal to the outstanding lease balance minus the then current fair market value of the Houston facility. 17 18 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS, NONE ITEM 2. CHANGES IN SECURITIES, NONE ITEM 3. DEFAULTS UPON SENIOR SECURITIES, NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS (A) ANNUAL MEETING OF SHAREHOLDERS ON FEBRUARY 21, 1997.
BROKER (C) PROPOSALS FOR AGAINST WITHHELD ABSTAIN NONVOTES (PROXY TOTALS IN THOUSANDS) ELECTION OF DIRECTORS JAMES R. CRANE 14,020 * 4 - * DONALD P. ROBERTS 14,020 * 4 - * DOUGLAS A. SECKEL 14,020 * 4 - * WILLIAM P. O'CONNELL 14,020 * 4 - * NEIL E. KELLEY 14,020 * 4 - * FRANK J. HEVRDEJS 14,020 * 4 - * APPROVAL OF APPOINTMENT OF 14,020 2 * 2 - PRICE WATERHOUSE LLP AS INDEPENDENT PUBLIC ACCOUNTANTS *NOT APPLICABLE
ITEM 5. OTHER INFORMATION FORWARD-LOOKING STATEMENTS The statements contained in all parts of this document, including, but not limited to, those relating to the Company's plans for international air freight forwarding services; the future expansion and results of the Company's terminal network; plans for local delivery services; construction of new facilities; future operating expenses; any seasonality of the Company's business; future margins; future dividend plans; use of offering proceeds; ability to continue growth and implement growth and business strategy; the ability of expected sources of liquidity to support working capital and capital expenditure requirements; the tax benefit of any stock option exercises; and any other statements regarding future growth, cash needs, terminals, operations, business plans and financial results and other statements which are not historical facts are forward-looking statements. When used in this document, the words "anticipate," "estimate," "expect," "may," "project," and similar expressions are intended to be among the statements that identify forward-looking statements. Such statements involve risks and uncertainties, including, but not limited to, those relating to the Company's dependence on its ability to attract and retain skilled managers and other personnel; the intense competition within the freight industry; the uncertainty of the Company's ability to manage and continue its growth and implement its business strategy; the Company's dependence on the availability of cargo space to serve its customers; the potential for liabilities if certain independent owner/operators that serve the Company are determined to be employees; effects of regulation; results of litigation; the Company's vulnerability to general economic conditions and dependence on its principal customers; the control 18 19 ITEM 5. FORWARD -LOOKING STATEMENTS (CONTINUED) by the Company's principal shareholder; the Company's potential exposure to claims involving its local pick-up and delivery operations; the Company's future financial and operating results, cash needs and demand for its services; and the Company's ability to maintain and comply with permits and licenses; as well as other factors detailed in the Company's filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (A) EXHIBITS. *3(i) Second Amended and Restated Articles of Incorporation of the Company (Exhibit 3.1 to the Company's Registration Statement on Form S-1 (Registration No. 33-97606)). *3(ii) Amended and Restated Bylaws of the Company, as amended (Exhibit 3.2 to the Company's Registration Statement on Form S-1 (Registration No. 33-97606)). *10 Lease and Development Agreement dated as of January 10, 1997 between Asset XI Holdings Company, L.L.C. and the Company (Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1996). 11(i) Computation of Per Share Earnings for the Six Months ended March 31, 1997 and 1996. 11(ii) Computation of Per Share Earnings for the Three Months ended March 31, 1997 and 1996. 27 Financial Data Schedule. *99 Agreement between the Company and Mr. Daniel S. Swannie dated January 20, 1997 (Exhibit 99.1 to the Company's Registration Statement on Form S-3 (Registration No. 333-20211)). - ------------------ * Incorporated by reference as indicated. (B) On February 6, 1997, the Company filed a Form 8-K regarding earnings results for the quarter ended December 31, 1996. 19 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EAGLE USA AIRFREIGHT, INC. ----------------------------------- (Registrant) Date: May 15, 1997 BY: /s/ James R. Crane ------------------------- -------------------------------- James R. Crane President Date: May 15, 1997 BY: /s/ Douglas A. Seckel -------------------------- -------------------------------- Douglas A. Seckel Chief Financial Officer 20 21 INDEX TO EXHIBITS EXHIBITS DESCRIPTION *3(i) Second Amended and Restated Articles of Incorporation of the Company (Exhibit 3.1 to the Company's Registration Statement on Form S-1 (Registration No. 33-97606)). *3(ii) Amended and Restated Bylaws of the Company, as amended (Exhibit 3.2 to the Company's Registration Statement on Form S-1 (Registration No. 33-97606)). *10 Lease and Development Agreement dated as of January 10, 1997 between Asset XI Holdings Company, L.L.C. and the Company (Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1996). 11(i) Computation of Per Share Earnings for the Six Months ended March 31, 1997 and 1996. 11(ii) Computation of Per Share Earnings for the Three Months ended March 31, 1997 and 1996. 27 Financial Data Schedule. *99 Agreement between the Company and Mr. Daniel S. Swannie dated January 20, 1997 (Exhibit 99.1 to the Company's Registration Statement on Form S-3 (Registration No. 333-20211)). - ------------------ *Incorporated by reference as indicated. 21 EX-11.I 2 COMPUTATION OF PER SHARE EARNINGS (SIX MONTHS) 1 EXHIBIT 11(i) EAGLE USA AIRFREIGHT, INC. COMPUTATION OF PRO FORMA PER SHARE EARNINGS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AND FOOTNOTE AMOUNTS)
SIX MONTHS ENDED MARCH 31, 1997 1996 ---------- ----------- Net income (1)................................................................................$ 7,462 $ 4,649 Shares used in computing pro forma net income per share (2): Weighted average number of shares outstanding............................................ 17,621 14,940 Incremental shares attributed to outstanding options (3)................................. 933 1,618 Shares sold to James R. Crane for acquisition of subsidiaries............................ 446 Shares for distributions paid from net proceeds of the initial public offering (4)............................................................................. 508 ---------- ----------- Total shares.................................................................................. 18,554 17,512 Net income per share .........................................................................$ 0.40 $ 0.27 ========== ===========
- ------------- (1) Net income for the six months ended March 31, 1996 includes a pro forma charge of $945,000 which represents the estimated federal income taxes that would have been reported had Eagle USA been a C Corporation prior to December 4, 1995. (2) On July 8, 1996, the Board of Directors authorized a two-for-one stock split, effected in the form of a stock dividend, payable August 1, 1996 to shareholders of record on July 24, 1996. All references in the financial statements to number of shares outstanding and related prices, per share amounts and stock option plan data have been retroactively restated to reflect the split. (3) For the six months ended March 31, 1997, calculated assuming exercise of options for 2,261,878 shares of common stock at prices ranging from $1.25 to $30.63 per share and assumed repurchase of shares at the average market price of $27.47 computed as of the beginning of the period. For the six months ended March 31, 1996, calculated assuming exercise of options for 2,129,962 shares of common stock at prices ranging from $1.25 to $12.38 per share and assumed repurchase of shares at the average market price of $13.14 computed as of the beginning of the period. Pursuant to Securities and Exchange Commission Staff Accounting Bulletins and Staff policy, common equivalent shares issued during the 12-month period prior to an initial public offering at prices substantially below the public offering price are presumed to have been issued in contemplation of the initial public offering and have been included in the calculation as if they were outstanding since the beginning of the period presented (using the treasury stock method and the initial public offering price). (4) Calculated for 1996 by dividing the sum of the Special Distribution Notes ($10,910,000) paid from the net proceeds of the initial public offering into the assumed net proceeds per share from the initial public offering of $15.03 (pre-split) and weighted based upon the days the notes were outstanding during the first quarter of fiscal 1996. 22 EX-11.II 3 COMPUTATION OF PER SHARE EARNINGS (THREE MONTHS) 1 EXHIBIT 11(ii) EAGLE USA AIRFREIGHT, INC. COMPUTATION OF PER SHARE EARNINGS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AND FOOTNOTE AMOUNTS)
THREE MONTHS ENDED MARCH 31, 1997 1996 ---------- ----------- Net income............................................................................. $ 2,948 $ 2,106 Shares used in computing net income per share (1): Weighted average number of shares outstanding........................................ 17,717 17,046 Incremental shares attributed to outstanding options (2)............................. 926 1,646 ---------- ----------- Total shares........................................................................... 18,643 18,692 Net income per share .................................................................. $ 0.16 $ 0.11 ========== ===========
- ------------- (1) On July 8, 1996, the Board of Directors authorized a two-for-one stock split, effected in the form of a stock dividend, payable August 1, 1996 to shareholders of record on July 24, 1996. All references in the financial statements to number of shares outstanding and related prices, per share amounts and stock option plan data have been retroactively restated to reflect the split. (2) For the three months ended March 31, 1997, calculated assuming exercise of options for 2,261,878 shares of common stock at prices ranging from $1.25 to $30.63 per share and assumed repurchase of shares at the average market price of $28.49 computed as of the beginning of the period. For the three months ended March 31, 1996, calculated assuming exercise of options for 2,129,962 shares of common stock at prices from $1.25 to $12.38 per share and assumed repurchase of shares at the average market price of $13.85 computed as of the beginning of the period. Pursuant to Securities and Exchange Commission Staff Accounting Bulletins and Staff policy, common equivalent shares issued during the 12-month period prior to an initial public offering at prices substantially below the public offering price are presumed to have been issued in contemplation of the initial public offering and have been included in the calculation as if they were outstanding since the beginning of the period presented (using the treasury stock method and the initial public offering price). 23 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF EAGLE USA AIRFREIGHT, INCORPORATED FOR THE SIX MONTH PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q REPORT. 1,000 6-MOS SEP-30-1997 OCT-01-1996 MAR-31-1997 27,366 4,382 41,155 811 0 75,824 14,336 3,438 87,375 21,439 0 0 0 18 65,918 87,375 129,075 129,075 72,877 72,877 44,975 0 0 12,197 4,735 7,462 0 0 0 7,462 0.40 0.40
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